1. What are the two main classifications for property policies? (p. 3)
Named perils: lists the specific perils such as on a Fire & Extended Coverage (EC) form.
All-risk: covers all perils except those excluded in writing.
2. What kind of risks would be considered for each of these two types of policies? (p. 3.)
The type of coverage businesses choose will depend on their objectives. The condition of the property, its use and overall value will play a role in the decision.
In some cases, the insurer’s underwriting criteria will determine the type of coverage. For risks that an insurer considers to be substandard only very limited insurance will be available. The type of coverage an insured wants is tempered by what an insurer is prepared to risk. In some cases only the most basic fire insurance policy will be offered.
3. What are the four main parts of a policy? (p. 3)
1. Declaration (or Schedule)
2. Wordings
3. Statutory Conditions where laid down by statute law, usually the Insurance Act of a province or the General Conditions in Quebec
4. Endorsements (as applicable)
4. Why is it important to accurately identify the insured? (p. 3)
If not identified accurately, the property or business meant to be insured might not be.
5. How would a sole proprietorship be named in a policy? (p. 3-4)
A sole proprietorship will include the name of the owner of the business he/she operates.
For example, Penelop Pocket d/b/a Pocket of Miracles is a typical format used. The abbreviation d/b/a means “doing business as” and o/s, another short form means “operating as.”
6. What details do the declarations (or schedule) contain? (p. 3)
· Property insured and its address;
· Insured mailing address;
· The policy period;
· Occupancy of the building or use of the insured object;
· The sum insured;
· Any loss payees other than the insured;
· The premium.
7. What are manuscript wordings? (p. 4)
These wordings are specially drafted by larger corporate clients as a joint effort of the insurer and the insured.
8. What are the advantages and disadvantages of using manuscript wordings? (p. 5)
The insured has the advantage of having a policy that provides the precise coverage needed by the corporation. However, insureds lose the legal advantage of contra proferentem when they participate in making up the contract wording.
9. Given an example of some risks that will often need a specific policy form designed especially for it. (p. 5)
A condominium high rise for example will be covered using a special form designed especially for condominiums.
A building under construction needs a special builder’s risk policy.
10. Review the comments about Statutory Conditions and General Conditions (Quebec
Statutory Conditions which are set out in the provincial Insurance Acts, are part of every fire policy issued in the common law provides and apply to most property policies.
The corresponding conditions in Quebec
11. What are the main features of wordings as described under Commonly Used Wordings. (p. 9)
Printed wordings comprise mainly of:
1. Descriptions of the property insured including its location, detailed definitions of building, equipment, etc.
2. Standard clauses which:
· Widen the coverage, for instance, the permission clause
· Control the way the coverage operates, for instance, the coinsurance clause
12. Explain the two practical points mentioned about becoming familiar with wordings. (p. 9)
By reading the wordings, one must keep the following two objects in mind:
1. To know, at least in a general way, what they cover and what restrictions apply. Note any important differences between the policies of the different companies.
2. Some of the forms set out essential underwriting information. By entering the details of a risk on a spare form you can secure the information that the company underwriter needs to give you a quotation.
13. Do you think applications are useful? Give your reasons. (p. 9)
Written applications are required by law for certain insurances. Whether specifically required or not, a properly completed and signed application is invaluable. It provides rating and underwriting information and is a producer’s best ally should a dispute arise.
14. List the five policy forms mentioned and comment on their use. (p. 10)
1. Retail Store Form: used to cover the building and contents of retail stores. It is not widely used today having been largely superseded by the package policies.
2. Mercantile Building
3. Package Policies: businesses under 1) and 2) can be insured under package policies which include additional coverages such as business interruption, liability and crime.
4. Building and Contents: used for larger risks that have only “incidental” stock to cover. (E.g. schools, hospital, etc). There are usually two forms, one with coinsurance and one without.
5. Building, Equipment and Stock: used for larger risks where stock is part of the business (manufacturers/wholesalers) with two variations: non-sprinklered and sprinklered. The non-sprinklered form can be with or without coinsurance (usually 80%). The sprinklered form normally calls for 90% coinsurance.
6. Stock Insurance: having a high limit with the actual amounts of stock reported and the premium adjusted accordingly for businesses with varying amounts of stock throughout the year.
15. What are the alternative methods of insuring stock? (p. 11)
One calls for regular reports of value, usually monthly. Premium is paid initially on 75% of the limited insured. At the end of the year the value reports are averaged. The actual premium due is calculated on the average value and the insured either pays extra or gets a return. Coinsurance is 100%.
Small firms may not find it possible to make regular reports of value thus may opt for the adjustable stock plan “Stock Form (with Premium Adjustment Option)” This allows the insured to adjust his premium after year-end but does not penalize him if he does not do so. With this form, he has to deposit 100% of the premium, compared with 75% under the first plan.
The third alternative is the Peak Season Endorsement. This simply increases the stock coverage at specified times by set amounts and the premium is paid on this basis. Provided the increased amounts are carefully fixed and reviewed from time to time, this is often the best basis for a small risk.
16. How did the expression “fire and EC” come about? (p. 11)
Historically we refer to the basic coverage as Fire and EC. There was a time when the perils of fire, lightening and explosion represented the basic coverage and a separate extended coverage endorsement was attached to it. The extended coverage perils are now party of the main wording and is today describes the most basic named perils form.
17. What perils are covered under the most basic named perils policy? (p. 12)
· Fire or lightening;
· Explosion;
· Impact by aircraft, spacecraft or land vehicle;
· Riot, vandalism or malicious acts;
· Smoke;
· Leakage from fire protective equipment;
· Windstorm or hail
18. What are some of the other perils that might be covered under a broader named perils coverage? (p. 13)
Some insurers provide additional perils such as water escape from a plumbing system, accidental rupture or freeze up of a plumbing, heating or air conditioning system and theft. An apartment building or other commercial building with residential occupancy would likely be considered acceptable by underwriters of this extended coverage.
19. Why is it important to carefully review the actual policy wording to be used? (p. 13)
It is extremely important to check the actual policy wording to be used. Definitions change and extensions added that will change the coverage as it is provided under the typical basic forms.
20. Why would an insured choose a named perils policy? (p. 13)
A cost-conscious insured may choose to be insured with a named perils form especially when it is an exceptional form that incorporates many more additional perils than the norm.
21. What additional coverage is provided in a loss situation? (p. 13)
When a loss occurs, there is a provision for covering property temporarily removed from the insured premises to prevent or restrict damage.
22. What are the exclusions usual to a named perils property policy? (p. 13)
1. Damage to electrical devices, appliances or wiring caused by electric current is excluded but not ensuing fire damage.
2. Damage to goods by their undergoing a process involving the application of heat.
3. War
4. Nuclear
5. Money and securities
6. Miscellaneous types of property
7. Vacancy and unoccupancy
8. Bylaws
23. Name the types of property that can be insured. (p. 14)
· Building
· Building, equipment and stock
· Contents of every description
· Property of every description
· Accounts receivable
· Property in transit
· Cash and securities
· Jewellery and art
· Business interruption
· Extra expense
24. What is included in the definition of building in a typical policy? (p. 15)
Building includes additions and extensions, permanent fittings and fixtures, items required for maintenance and building services.
25. What is included in the definition of equipment in a typical policy? (p. 15)
Equipment generally means all contents usual to the insured’s business including furniture, fittings, fixtures, machinery, tools, utensils and other appliances.
26. What is included in the definition of stock in a typical policy? (p. 15)
Stock means merchandise of every description plus packaging, wrapping and advertising material, including similar property belonging to others which the insured is under an obligation to insure or for which he/she is legally liable.
27. Explain what is meant by Actual Cash Value (ACV)? (p. 20)
It is the cost to replace with new items less physical depreciation (wear and tear).
If ACV insurance is bought and there is a loss t hen the insured will either have to buy secondhand replacements for the items destroyed or buy new, and make up the difference from his own pocket.
28. Review the comments about Replacement Cost? (p. 20)
Replacement cost pays the full cost of replacement or repair, without any deduction for depreciation.
29. How is coverage limited for records? (p. 23)
The coverage on records including books of account is limited to the value of the blank books and the cost of reproducing the information they contain from source data. There is no cover for the cost of “reworking” the information.
30. What information is provided about coinsurance? (p. 24)
Coinsurance either encourages or requires the insured to cover close to full value by imposing a share of the loss on him if he fails to do so. Total losses do sometimes occur and unless the insured has coverage for 100% of value, he can suffer a partly uninsured loss even though he has met the coinsurance requirement. Insurance to full value is the only way to be sure of avoiding paying part of the loss.
31. What is said about stated amount? (p. 24)
There is a snag to insuring on a coinsurance basis as values keep rising owing to inflating and the amount insured can quickly fall below the required percentage and if this happens, the insured will have to pay part of the loss himself.
The stated amount method avoids this by the insured filing a statement at the start of the policy year to the insurance company setting out the 100% value of the property insured.
32. Note the information required for underwriting and rating. (p. 28)
In addition to the applicant’s name, address, business, location of the property and amount to be insured, the following information is needed for underwriting and rating:
· Construction
· Heating methods
· Business and processes
· Nearby properties
· Fire protection
· Past losses
· Length of time in business
33. Explain the differences between flat rating and insurer rating? (p. 29)
Flat rating is for simple risks such as small stores and offices whereby rates are laid down by insurers and premiums are calculated by producers.
Insurer ratings are for more complex risks rated by the insurers on the basis of information such as the above obtained by the producer, and in some instances, an inspection by the insurer.
34. From whom can you get help with submission? (p. 30)
A good company field inspector can be of great help to a producer; especially a new one and the company underwriters can also give valuable assistance.
35. Note the points that arise about bylaws coverage. (p. 25)
The older buildings erected before the higher standards were enacted are allowed to stand, but if they are seriously damaged by fire, the local authority will probably require reconstruction or repairs to conform to the current regulations. This will often mean that undamaged portions of “non conforming” buildings have to be torn down and rebuilt and can incur large expenses.
If the insured buys replacement cost insurance, his policy can be extended to cover the additional cost arising from the operation of the bylaws.
The standard endorsements giving effect to this extra insurance provide coverage for the following:
· Value of undamaged portion of buildings
· Demolition and debris removal cost of undamaged portion of buildings
· Increase in cost of construction or repair
36. What points are mentioned about the consequential loss – cold storage endorsement? (p. 26)
One type of consequential loss can be covered by an endorsement on a property policy called the Consequential Loss Assumption Clause – Cold Storage.
This applies to spoilage of refrigerated stock caused as a consequence of the first loss, say fire damage to the refrigeration system. The most obvious examples of the need for this coverage are frozen or chilled foods and milk in supermarkets and convenience stores.
37. Note the points arising from inflation and automatic increases clauses. (p. 26)
Clauses are often available to increase sums insured so as to help combat the effects of inflation. Increases may be linked to specified indices. Other clauses may provide for a fixed percentage increase on buildings or equipment at stated intervals. Stock is not usually held for long enough to warrant an automatic increase clause.
38. Review the discussion of personal property of officers and employees. (p. 27)
Coverage is qualified to cover for personal property of offices (presidents, secretary, and treasurer) as follows:
· It is available at the option of the insured
· It does not apply if the owner has insurance, unless the insured has an obligation to insure or is legally liable
39. How does coverage for tenant’s improvements operate? (p. 27)
Tenant’s improvements/betterments are improvements to the building made or acquired by the tenant. These belong to the tenant so long as his lease is in force, but cannot be removed when it ends and then become the property of the landlord.
Their value to the tenant thus decreases as the lease gradually runs out.
40. Note the considerations that apply to blanket coverage. (p. 28)
The word blank indicates that coverage is provided applying to all property with very few restrictions.
It may be to the insured’s advantage to have one or the other type of blanket coverage particularly where the insured’s property is often moved from one location to another. An average rate will be set based on the exposures at each location and a coinsurance clause will apply when any type of blanket coverage is arranged.
41. Note the chief points about farm forms. (p. 30)
Commonly used clauses for farm policies include:
Rebuilding Clause – Deferred Payment: provides that if a building is damaged to more than 2/3 of its value, the insurance company will pay initially only 50% of the total payable. To collect the remainder, the insured must actually rebuild within nine months of the loss and within 200 feet of the damaged building.
Extended Coverage: this divides into two parts: the farmer’s dwelling and contents and the other part to the rest of the farm. The insurance on the farmer’s dwelling and contents is like that for other private dwellings and the “all other” coverage is similar to the commercial EC. The chief differences between the EC coverage for dwelling and contents and that for the remainder of the farm are:
· The explosion coverage for the dwelling and contents is wider
· Rupture or escape of water from heating, plumbing, or air conditioning systems
· The windstorm or hail coverage differs
42. What further coverages may be required for farms? (p. 31)
Farm Machinery and Equipment Floater: covers mobile machinery and equipment against all risks anywhere in Canada USA
Livestock: covers accidental death or unnecessary destruction plus theft and the animals are usually insured by class.
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